Close Close
ThinkAdvisor

Regulation and Compliance > Federal Regulation

Unregistered Investment Advisor Pleads Guilty to Securities Fraud

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • The unregistered advisor allegedly engaged in a scheme to fraudulently obtain over $20 million from investors.
  • He took client money out of the funds he managed to repay other investors, prosecutors said.
  • The SEC and acting U.S. attorney for the District of New Jersey filed separate complaints.

An unregistered investment advisor and hedge fund manager pleaded guilty to one count of securities fraud for his role in a scheme to fraudulently obtain over $20 million from investors through misrepresentations about trading strategy and fund performance, according to Rachael A. Honig, acting U.S. Attorney for the District of New Jersey.

On Tuesday, George Heckler, 64, of Charleston, South Carolina, pleaded guilty by videoconference before U.S. District Judge Madeline Cox Arleo, according to Honig, who also filed a complaint against Heckler in U.S. District Court for the District of New Jersey, alleging securities fraud.

Separately, the Securities and Exchange Commission filed a complaint against Heckler on Tuesday in the same court, alleging that, between 2009 and 2019, he defrauded investors, as well as CV Special Opportunity Fund and Cassatt Short Term Trading Fund, two hedge funds he advised and controlled.

Heckler “repeatedly misled investors by telling them they were earning consistent gains while, in reality, their money had not been invested as promised (or at all), and the value of the money that had been invested was decimated by poor performing investments,” the SEC alleged.

A significant amount of investors’ funds were not invested at all or were instead used to “make Ponzi-like payments to prior investors,” according to the SEC, which is seeking to have Heckler “disgorge all ill-gotten gains or unjust enrichment with prejudgment interest” and also pay civil penalties.

According to the SEC complaint, Heckler raised at least $90 million in new investor capital through five entities he controlled, of which over $32 million was used to repay or redeem prior investors. The SEC also alleged that Heckler took over $1 million for his personal use.

Diverted Funds

Heckler managed, controlled or was involved with multiple investment funds, including Conestoga Partner Holdings, Cassatt Short Term Trading Fund, CV Special Opportunity Fund and TA1, according to Honig’s complaint.

From around 2014 to around 2018, Heckler, “willfully and knowingly, directly and indirectly, by use of the means and instrumentalities of interstate commerce, the mails and facilities of national securities exchanges, in connection with the purchase and sale of securities, used and employed manipulative and deceptive devices and contrivances in violation” of securities laws, according to the complaint.

Heckler allegedly “misrepresented to investors that he would invest their funds in specific trading strategies” but, “instead, he diverted their funds out of Cassatt and TA1 for purposes inconsistent with the trading strategies, including to pay out millions of dollars to other investors,” Honig alleged.

Heckler also allegedly used investors’ funds to cover investment losses suffered by other funds under his management and/or control.

In September 2014, “Victim-1” invested about $9.1 million in Cassatt, relying on Heckler’s representation that the client’s money would be invested consistent with Cassatt’s “first loss” trading strategy, the complaint alleged. But Heckler used $4.6 million of Victim-1’s investment to repay existing investors and the rest to satisfy other obligations Heckler owed that were unrelated to Cassatt, according to Honig.

Heckler also approached “Victim-2” about the potential creation of a hedge fund deploying capital to first-loss traders, who would serve as the “first loss” protection for investors’ capital, according to the complaint. In late 2015, “Victim-2” created a hedge fund, using the concept proposed by Heckler (“Entity-1”).

In 2015 and 2016, “Entity-1” invested $10.1 million in TA1 via a participation agreement that provided the investment would be used for certain trades, according to the complaint. However, the “Entity-1” investment was instead used for other purposes, including repaying others who had previously invested with Heckler, Honig alleged.

Throughout the scheme, Heckler sent statements to investors misleading them into believing the value of their investments was growing, when the value was actually declining, the complaint alleged. Heckler took about $1 million in fees and distributions from the fraudulently obtained investments for his personal use, Honig alleged.

The securities fraud count carries a maximum penalty of 20 years in prison and a $5 million fine, according to Honig, who said sentencing is scheduled for July 15.